Most small business are over-leveraged in this economy and don t have enough collateral to cover the loans. Banks are being pushed to increase deposits and collect on delinquent loans established prior to the sub-prime lending debacle. In other words their lenders are on a tight leash.
RealityJ, the dynamic is so complicated. But the basics are this: Banks balance sheets got out of whack when they began lending less diligently over the past decade. When real-estate values plunged, the banks were so overleveraged that many of them failed and others fell short of capital requirements. The easiest response was to stop lending.These days, few banks are looking to generate loans. Instead, they are looking to shore up their balance sheets by holding onto deposits and working to improve struggling parts of their loan portfolios. None of that, as you can see, has anything to do with making new loans.Eventually, this will turn around. Several new loan programs may come through Congress this year, making lending less risky for banks by creating federal guarantees. While the SBA already has done some of that, these programs are likely to shift even more of the risk from banks to taxpayers. The net result will be a loosening of lending to smaller companies. We won t see lending reaching nearly the frothy level of the past decade, but we ll almost surely enter a somewhat more relaxed environment in the next year.
